Management Accounting Report: Carfulan Group Analysis and Systems

This report provides a comprehensive overview of management accounting, focusing on its application within the Carfulan Group, a medium-sized manufacturing company. The report begins with an introduction to management accounting, differentiating it from financial accounting and highlighting its role in planning, controlling, and decision-making. Task 1 explores the core concepts, explaining management accounting and its essential requirements, such as providing timely and high-quality information for internal decision-making, including cost control and performance measurement. It then delves into various management accounting methods, including cost accounting, job costing, and inventory management systems, evaluating their advantages, disadvantages, and practical applications within an organization. Task 2 focuses on cost calculation using appropriate techniques, including the preparation of income statements using marginal and absorption costing methods. Task 3 examines the pros and cons of different planning tools, specifically budgetary control, analyzing their use in budget formulation and forecasting. The report concludes by summarizing the key findings and emphasizing the significance of management accounting systems for efficient business operations and achieving organizational goals.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
LO1..................................................................................................................................................1
P1. Explaining management accounting and important requirement of the system of
management accounting..............................................................................................................1
P2. Explaining various methods of the management accounting used for the reporting of
management accounting..............................................................................................................2
M1&D1. Evaluating the advantages and disadvantages of the management accounting
systems and their application in the organization. .....................................................................4
TASK 2............................................................................................................................................8
LO2. ................................................................................................................................................8
P3&M2&D2. Calculation of the cost using the adequate techniques and the preparation of the
income statement using marginal and absorption costing method..............................................8
TASK 1..........................................................................................................................................11
LO3. ..............................................................................................................................................11
P4. Explaining the pros and cons of different planning tools of budgetary control..................11
M3. Analysing the application and use of planning tools for framing and forecasting the
budget........................................................................................................................................13
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting also called as the cost accounting and is a system of presentation
and collection of the appropriate economic information in relation to the organization for
controlling, planning and making decisions. It includes the concepts and the methods that are
necessary for conducting effective planning and for choosing the best alternative action for
facilitating control over eh performance of the business and the workers. The present study is
based on Carfulan group which is medium sized manufacturing company deals in metal and
ceramic material. Furthermore, the report describes about the management accounting and its
systems. It also explains the different planning tools and their advantages and disadvantages.
TASK 1
LO1.
P1. Explaining management accounting and important requirement of the system of management
accounting.
Management accounting is a wider concept and one of the major branch of accounting.
Management accounting phrase includes two words that is management and the accounting. It
means accounting in terms of the management. It is the process of developing the reports and the
accounts of the management that states the precise financial and the statistical information that is
needed by the managers for making the routine and day-to-day decisions (Maas, Schaltegger
and Crutzen, 2016). It demonstrates the re-orientation of the accounting function to define the
activity structure of the management. Management accounting develops the monthly and the
weekly reports for the internal staff of the organization which involve department managers and
executive officer. These reports provide the information relating to the availability of the cash,
revenue from the sales, details of in hand orders, accounts receivable, accounts payable,
outstanding debts, requirement of raw material etc. It also includes the trend charts and the
variance analysis. A management accounting system is said to be effective when it offers timely
information with superior quality to the managers and other persons who need it. Management
accounting systems are the confidential reports for the internal management that helps the
managers in efficient and effective decision making.
Essential requirements of the management accounting systems are as follows-
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Different systems of the management accounting plays a crucial and essential role in various
aspects of the management. It aids the Carfulan in determining its aim through the information
provided by these systems and also helps in finding out the various routes with which the goals
can be achieved. An effective plan can be prepared by using the management accounting system
so that task can be performed as per the strategies and the procedures set (Hopper and Bui,
2016). Cost control device of the management accounting assist the Carfulan in optimum use of
their resources with reduction in the cost of the production per unit so that larger profits can be
generated. This helps in providing reasonable and affordable services with quality to their
customers. These systems enable in making judgments regarding the selection of the plan and the
policy that best suited and useful for the organization. Through the system of management
accounting performance can be measured and helps in finding out any deviation so that timely
action can be taken by the managers which in turn facilitate achievement of the objectives in
accordance with the standards set (Chenhall, and Moers, 2015). With the help of these systems,
efficiency and effectiveness of the business and the management increasing and the targets can
be met on time. Thus, management accounting system is very important for smooth functioning
of the operations of the ABC.
P2. Explaining various methods of the management accounting used for the reporting of
management accounting.
There are several types of management accounting system that used by the Carfulan for getting
information relating to the different aspects of the management. The basic management
accounting systems includes cost accounting, job-costing, inventory management and price
optimization system.
Cost accounting system- This system is used for ascertaining the cost of the products so
that profits can be analyzed and inventory valuation can be evaluated (Granlund and Lukka,
2017). Cost accounting system helps facilitates control over the cost so that high income can be
gained in a competitive market. Specifically this system is classified into two costing approach
that are job order costing and process costing. Job order costing approach is the system in which
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manufacturing cost are assigned or accumulated for an individual unit of an output. This system
is used when the several items are produced and each has a different cost. Process costing is the
method that tracks and accumulate the direct cost and indirect cost are allocated to the
manufacturing process. In this cost is assigned to each unit of the process of production where
similar products are produced in large quantity.
Inventory management system- This system combines the technology such as hardware
and the software of the business of the ABC. It provides for the procedures and the processes for
maintaining and monitoring the stocked products and describes whether those products are assets
for the ABC, raw materials and supplies or the finished products that are ready to be delivered to
the vendors or the ultimate consumers. This system traces the goods looking towards the whole
supply chain and the portion of chain in which the business operates (Wagenhofer, 2016). There
are several types of inventory management system are present in the organization that involves
the manufacturing, warehousing and retail system. The working of the inventory control includes
the tracking of the two major functions that are receiving and shipping of the products. The aim
of the inventory control is to know accurately the level of the current inventory and minimizing
the under and overstock situation of the ABC. By this a smarter inventory system for decision
making can be build by which clear insight in relation to the control can be attained. Inventory
management system functions as creating the purchase orders, relocating, adjusting, receiving
and disposing the inventory (Shields, 2015). It also seeks for the sales orders and schedule,
create, run and share the reports. Lastly, bar-code labels are printed in this system.
Job costing System- Under this system, process of information accumulation in relation
to the cost attached with particular service job or the unit of production. This information is
needed for knowing and submitting the cost information under a contract to the customers where
the reimbursement of the cost is involved. It accumulates mainly three kinds of information that
are direct material, overhead cost and direct labor for the ABC (Hiebl, 2018). This information
through this system enables the organization in determining the correctness of their estimating
system so that prices can be quote in such a way that results in reasonable profits. It is used to
assign the inventoriable cost to the goods manufactured.
Price optimization system- It is the system that acts as the mathematical program which
assist in calculating the varying demand of the customers at various price levels. This data is
combined with the information on the cost and the inventory levels for recommending the best
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suitable prices which will generate higher profits for the ABC. It considers critically three
elements of pricing that are pricing strategy, tactics for managing all the elements that influence
the profitability and product's value for buyer as well the seller (Curry, Hersinger and
Nilsson,2019). It helps the business in identifying the initial pricing, discount pricing and the
promotional pricing for the product of the ABC.
Thus, adopting the accurate and appropriate system for management accounting is of great
importance similar to hiring the potential manager for the ABC. The more effective the system,
the management can avail for more reliable and accurate information to their internal as well as
the external users. So, managers of the Carfulan must ensure that right system is chosen for their
business for implementation purpose.
M1&D1. Evaluating the advantages and disadvantages of the management accounting systems
and their application in the organization.
Cost accounting system
Advantages Disadvantages Application
 Cost accounting system
helps the Carfulan in
measuring the
efficiency and provides
ways in improvement
and maintaining the
efficiency
(Rikhardsson and
Yigitbasioglu, 2018).
 It facilitates highlights
on the all those
activities that brings
profits and those
activities that results in
the losses so that
comparison can be
made between the
 Future decisions cannot
be taken through this
system because the cost
records in this system
are based on the past
performances.
 The cost data presented
by this system are not
considered as highly
useful as previous
years cost are not same
for the succeeding
years.
 The cost ascertained
might not be true as it
is does not evaluate the
partly utilization of the
Mainly the cost accounting
deals with the cost ascertained
by the service or the product. It
applies to determine the
various aspect like cost
expenses of the Carfulan for
manufacturing its products.
This helps in keeping the
control over the cost and
improves the profits of the
ABC.
4

effective and
ineffective activities.
 This system provides
for the fixation of the
prices as if the prices
are set without the
costing information
then chances of quoting
the prices too high and
too low increases.
 Information in relation
to the proper planning
is also stated by the
cost accounting system.
It provides detailed
information in terms of
the availability of the
machine and the
capacity of the labor.
By this proper working
can be done so that
overwork and idle
situation need not to be
faced by ABC.
capacity.
 In this system,
absorption of the cost
are on the basis of per-
determined rate which
leads over and under
absorption (Sunarni
and Ambarriani,
2019).
 It fails in studying and
solving problems in
relation to the time,
motion and work study.
Inventory management system
Advantages Disadvantages Application
 Best inventory
management system
 Inventory management
systems are highly
This system helps in reducing
the carrying cost and traces the
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provides for the cost
reduction as Carfulan
invest huge money in
inventory for running
their operations
smoothly. The
additional expenses in
storing and handling
the material get
reduced with the use of
this system.
 The efficiency of the
business of the
Carfulan can be
increased by adopting
this system. This leads
to increase in the
productivity and the
targets relating to the
production as well as
the sales will be met.
 Possibility of mistakes
are lower in this system
as it provides for the
computation of the data
collection and
maintenance of the
records.
expensive and due to
this Carfulan cannot
afford to use this
software (van der Poll
and Mthiyane, 2018).
The components of the
hardware in the system
like bar-code reader
and the other additional
expenses also increases
the cost.
 This system is said to
be complex tool as it
involves the
combination of the
technology which can
be run only by highly
skilled workforce.
 A lot of time is also
consumed for learning
the use of the inventory
management system.
products' delivery from vendor
to the customer. It is applied in
the large industry as it is
complex and expensive. It
helps in managing the
inventory adequately and
through LIFO and FIFO
method detailed information
about the present and the need
of the future inventory can be
assessed.
Job costing system
Advantages Disadvantages Application
6

 Through this system
profits gained from
each job can be known
separately.
 Management of the
Carfulan can assume
the job related cost on
basis of the past
records.
 With the use of job
costing system
Carfulan can compare
the actual cost of the
past job with the
present job so that
accurate results can be
computed.
 It facilitates the pricing
for each of the job in
the organization.
 Close supervision is
needed as lack of
standardization of the
job is present in this
system.
 Clerical work is
required more for
maintaining the
detailed information in
the job costing system.
 Accurate results of cost
is not obtained by
using this system as it
includes the execution
of the several numbers
of jobs.
 The price of the job is
set on basis of the
condition of market
and not on the past
record basis.
This approach is applied in any
industry specially in the
service industry for ensuring
that pricing of the product
covers overhead, actual cost
and profits (Nishimura, 2019).
This helps in tracking the
direct labor, material,
equipment cost and direct cost
at their realizable or actual
values.
Price optimization system
Advantages Disadvantages Application
It helps in determining the
demand for the product with
appropriate figures and
mathematical analysis.
Different prices can be
It provides flexibility and
instability in the prices which
creates unstable situations for
the firm.
Prices set are based on the
It is applied for determining
the demand of the customers at
which they can afford to buy
that product. This tool helps in
fixing the right price that is
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determined that best suits to
meet the objective of the profit
maximization for the
Carfulanby this system.
It helps the organization in
gaining the clear view and
discover right price for
reaching the sales target.
evaluation of the estimated
calculation which may be not
correct sometimes. So by this
incorrect results get generated.
Higher profits cannot be
earned as prices are fixed with
minimum margin.
suitable to both Carfulan and
its customers.
TASK 2
LO2.
P3&M2&D2. Calculation of the cost using the adequate techniques and the preparation of the
income statement using marginal and absorption costing method.
Marginal costing- It is a technique where the marginal cost such as variable cost charger to the
cost of unit and the fixed cost for a specific period is wholly written off against contribution
(Steccolini, 2019). It means the additional cost infuses while producing the extra unit for the
output. In other words it is defined as the tool for presenting the data in which the fixed and the
variable cost are shown separately for managerial decision making.
Absorption Costing- It states that all the units produced in the Carfulan are entirely absorbed by
the cost of manufacturing. In this method the finished unit cost includes direct labor, direct
material, and both fixed and variable manufacturing overhead. It is also called as the full
absorption costing method.
Income statement through Marginal costing
For the
Month of
May
Particulars Unit Price
per
Figure
s (in £)
8

unit
Sales 300000 13
39000
00
Direct Materials
45000
0
Direct labour
60000
0
Contribution
28500
00
Less: Fixed overheads
40000
0
Net profit
24500
00
For the
Month of
June
Particulars
Unit Pric
e per
unit Figures
(in £)
Sales 270000 13 3510000
Less: COGS
945000.0
0
Contribution
2565000.
00
Less: Fixed overheads 400000
Profit for the month
2165000.
00
Working notes:
Calculation of price per unit
Particulars Unit
Direct Materials £450000
Direct labor £600000
Total production cost £1050000
Number of units 300000
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produced
Price per unit £1050000 / 300000
= 3.5
Particular
s
Unit Price
per
unit
Figures
(in £)
Opening
stock 0 0 0
Purchase 300000 3.5
1050000.
00
Closing
stock 30000 3.5
105000.0
0
COGS
(Opening
stock +
purchase –
closing
stock)
945000.0
0
Income statement through Absorption costing
For the
Month of
May
Particulars
Figures
(in £)
Sales 300000
1
3 3900000
Less: Direct Materials 450000
Less: Direct labour 600000
Less: Fixed overheads 400000
Gross/Net profit 2450000
For the
Month of
June
Particulars
Figure
s (in £)
Sales 270000 1 35100
10